Alan Pink takes a fresh look at the perennial question of profit extraction by company owners in the light of recent tax changes.
The majority of the readers of Business Tax Insider will either be involved in running owner-managed businesses (OMBs) or in advising them. The purpose of this article is to have a look at the question of how owner-managers should extract their annual income from the company’s profits.
The commercial reality and (following on from that) the tax consequences are completely different between the OMB sphere on the one hand, and the quoted or charitable sectors on the other. In an OMB, the income you take out of the company, whether in the form of salary or dividends, can be regarded in a sense as already ‘yours’, and the tax treatment in some ways reflects this essential fact.